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FSA consults on changes to regulation of financial benchmarks

FSA consults on changes to regulation of financial benchmarks

The Financial Services Authority (FSA) has proposed new rules and regulations for financial benchmarks, following the recommendations of the Wheatley Review of Libor.

On 2 July, the chancellor commissioned Martin Wheatley, managing director of the FSA, to undertake a review of the structure and governance of Libor the corresponding criminal sanctions regime.

The Wheatley Review of Libor was published at the end of September and includes a 10-point plan for reform of Libor. It said while setting Libor should remain an industry-led activity, the submission to and administration of the rate should be regulated by the Financial Conduct Authority (FCA).

Today, the FSA said it had considered the Wheatley review and the Treasury’s proposed amendments in designing an approach to regulate the setting of benchmarks and has issued a set of proposals.

These include ensuring benchmark administrators will be required to corroborate submissions and monitor for any ‘suspicious activity.’

It includes those submitting data to benchmarks to be required to have in place clear conflicts of interest policy and appropriate controls in place.

The proposals also recommend two significant influence controlled functions created under the FSA’s Approved Persons Regime for the administrator and submitting firms.

On top of this, the watchdog is seeking comments on ensuring the continuity of Libor and broadening participation in the rate.

The watchdog added: ‘The Wheatley Review concluded that global markets benefit from the continuing participation of major firms in the LIBOR panels and that market integrity could be undermined if submitting firms were to leave them.’

Wheatley, managing director of the FSA and chief executive officer designate of the FCA, said: ‘Confidence and trust are critical to financial markets. The disturbing events uncovered in the manipulation of LIBOR have severely damaged that trust.

‘Today’s proposals will bring in clear rules for the setting and governance of benchmarks and are a key step to ensuring the integrity of Libor.’

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